Exclusion of ‘anticipated profits’ prevents a claim for lost revenue

In EE v Virgin [2023] EWHC 1989 (TCC) the High Court examined the scope of exclusion clauses and determined that a claim for "loss of revenue” was effectively a claim for loss of profits and so fell within an exclusion clause precluding claims for ‘anticipated profits’. This decision is a reminder that the courts will, in principle, seek to uphold wide-ranging exclusions of liability if that is what parties to a contract have clearly agreed during negotiations.

Background

Virgin Mobile entered into an agreement with EE exclusively to use EE’s mobile network infrastructure in providing Virgin Mobile customers with 2G, 3G and 4G mobile data services. Several years later and in anticipation of 5G technology, the agreement was amended to allow Virgin Mobile to agree a similar arrangement with EE in respect of 5G services, or, if no agreement could be reached, then to allow Virgin Mobile to source 5G services from an alternative supplier (in which case Virgin customers could also receive 2G, 3G and 4G mobile data services from that alternative supplier). Following unsuccessful negotiations with EE, Virgin Mobile entered into a separate agreement with Vodafone relating to 5G mobile data services and commenced migration of its customers to Vodafone’s mobile network.

EE argued this migration breached an exclusivity clause in the agreement as Virgin Mobile had also migrated non-5G customers and added new non-5G customers to Vodafone’s network. EE claimed £24.6million in damages as “loss of revenue (claimed as damages)” in relation to these non-5G customers. In applying for summary judgment, Virgin Mobile asserted that it had not breached the exclusivity clause, but in any event the agreement contained an exclusion clause which, if applicable, would automatically preclude EE’s claim.

A claim for loss of profits

The Court rejected EE’s argument that its claim for “loss of revenue” or “charges unlawfully avoided” was distinct from a claim for loss of profits. The Court drew a distinction between a debt claim (for failure to pay for services provided) and a damages claim (for the diversion away of customers to whom no services have been provided). As EE had not provided any services to the migrated Virgin Mobile customers, no debt arose in respect of those customers and EE’s claim must be properly characterised as a damages claim for loss of expectation or bargain, for the expected revenues EE would have made if Virgin Mobile’s customers had used EE services under the terms of the agreement. This was the case irrespective of how EE itself had pleaded its case.

Construction of Exclusion Clause

Having established EE’s claim as one for ‘loss of profits’, the Court then determined that the presence of the exclusion clause in the agreement wholly precluded EE’s claim. The relevant part of the exclusion clause provided that “neither Party shall have liability to the other in respect of: (a) anticipated profits; or (b) anticipated savings”.

In reaching its conclusion, the Court noted the following:

• In applying the usual principles of construction, and by giving ‘anticipated profits’ its natural and ordinary meaning, the clause was clear and unambiguous– the parties had intended to exclude damages claims for loss of profits of any kind, which either party would foreseeably make. In the Court’s opinion there was no distinction between ‘anticipated profits’ and ‘lost profits.’
• The balance of the exclusion clause supported this analysis. This included a deliberate carve out for damage or loss arising from reckless or willful misconduct or gross negligence, meaning the parties had considered that a claim for loss of profits might arise in limited circumstances. This supported the natural broad construction of the clause.
• The exclusion applied equally to both parties and to any claim for either ‘anticipated profits’ or ‘anticipated savings.’
• The agreement was a sophisticated contract and would have been subject to detailed consideration as to the rights, risks and remedies for both parties during negotiations, such that the courts should give the clause its plain and ordinary meaning. The clause “uses clear express words rebutting any presumption that the parties did not intend to abandon their respective claims for damages for anticipated profits.”
• Although the exclusion prevented EE from bringing a damages claim for loss of profits, there remained other remedies available to EE in the event of Virgin Mobile’s non-performance, including claims for injunctive relief and wasted expenditure (which the court opined would arguably be more appropriate remedies where there was an alleged breach of exclusivity arrangements).

The Court therefore ordered summary judgment and dismissed EE’s claim.

Key Takeaways

This decision shows that the courts will strive to give effect to the ordinary and natural meaning within a contract, especially when it involves two sophisticated commercial entities. Negotiating parties should ensure that they have carefully considered all rights, risks and remedies that may arise in a contractual arrangement, and that clear drafting is used, particularly in relation to the effect of any proposed exclusion clauses and the impact they may have on future claims.

With thanks to Nisha Patel for her assistance in preparing this post.